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Egyptian concession contracts: no longer arbitrable? Egypt’s Cassation court sets aside Damietta Port Authority US$490 million ICC award

The Court of Cassation in Egypt has set aside a $490 million ICC award against an Egyptian state authority following their termination of a concession contract. This post explores the decision in detail and considers the ramifications for arbitration in Egypt following the Court’s decision that, for certain issues, state administrative contracts are not arbitrable.

Background

In 2006, Damietta International Ports Company (DIPCO) won a 40-year concession agreement relating to a container facility at the Damietta port in Egypt (concession agreement). In 2009, several key terms of the concession agreement were purportedly amended by the Damietta Port Authority (DPA) by way of an addendum to the agreement (addendum).Following significant delays with the project, the agreement was terminated by the DPA in 2015. Soon afterwards, DIPCO commenced arbitration proceedings in Cairo under the ICC Rules against DPA for breach of contract and damages.

The Tribunal’s Decision

On February 2020, the tribunal held that the concession was unlawfully terminated under Egyptian law and the terms of the concession agreement. DPA were ordered to pay $490 million in compensation to DIPCO, including $120 million in compensation for lost earnings.

The tribunal noted that the addendum purportedly amended “fundamental” parts of the concession agreement. However, they concluded that the addendum had not validly amended the concession agreement as DPA had not been able to demonstrate that the addendum had been properly approved by the Egyptian government. The only evidence DPA could provide was a letter from the secretary general of the Egyptian Council of Ministers to the Minister of Transportation, referring to the Council’s approval of the addendum. The tribunal held that this letter did not satisfy the formality requirements as provided under Egyptian law for the amendment of a concession contract.

Procedural history and the Court of Cassation’s Decision

Following the tribunal’s decision, DPA applied to the Egyptian courts to set aside the arbitral award arguing inter alia that the concession agreement, being an administrative contract, was not arbitrable and that the award violated Egyptian public policy. The Cairo Court of Appeal held that the concession agreement, whilst involving a government administrative party (DPA), was a private law contract. As the contract was a private law contract, the tribunal had acted within the authority granted to it in the arbitration agreement both when it concluded that the addendum was void and when it made its award. In the absence of any manifest errors in the award which were against Egyptian public policy, the Appeal Court ruled it did not have jurisdiction to review the tribunal’s findings and overturn the award. Accordingly, the challenge was rejected.

DPA appealed this decision to the Court of Cassation, the highest court in Egypt.

In a 14-page judgment, the Court of Cassation held that the “exceptional nature” of the concession agreement resulted in the conclusion that it was an “administrative contract”, rather than a private law contract. In coming to this finding, the court relied on two reasons. Firstly, one of the parties to the contract was an administrative body and was acting in its capacity as a public authority when contracting. Secondly, the concession agreement related to the operation of a public utility, the Damietta Port container terminal.

Accordingly, as the contract was administrative in nature, the question as to whether the addendum had been properly ratified in accordance with Egyptian law fell within the exclusive jurisdictional competence of state authority and outside the tribunal’s competence. The court ruled that the tribunal, in making findings on what it considered to be an administrative law issue, had violated Egyptian public policy principles as it was an implicit challenge of the state court’s exclusive jurisdiction. That finding in the award was therefore outside the tribunal’s competence.

Importantly, the court went on to conclude that the concession agreement’s then termination by DPA, being an Egyptian state administrative body, did “not form part of the Contract” as it was by its nature an “administrative decision”. Only the Egyptian State Council courts had the authority to review and overturn administrative decisions. Accordingly, the tribunal neither had the competence to rule on whether the agreement had been properly amended nor whether DPA’s decision to terminate the concession contract was unlawful. The court therefore found that the final award had breached Egyptian public policy, as it failed to respect the exclusive jurisdiction of Egyptian courts and ordered that it be set aside.

Conclusion

The decision will be of interest to international investors and Egyptian arbitration practitioners. Many foreign investors rely on arbitration dispute resolution clauses when contracting with Egyptian government bodies to ensure that any disputes which may arise will be resolved through a neutral, predictable forum. However, the court’s judgment creates some uncertainty as to the extent those arbitration agreements apply to disputes arising from the actions taken by the Egyptian government counterparty.

By ruling that the tribunal did not have the authority to review DPA’s decision to terminate the contract (nor DPA’s purported amendment) on the grounds of public policy, the court has implicitly signalled that similar decisions by state bodies might be beyond an arbitral tribunal’s competence. This judgment could lead to state bodies relying on Egyptian courts to limit the activities of arbitral tribunals or indeed lead to them more frequently challenging arbitral awards in the courts. This decision therefore goes against the recent pro-arbitration stance adopted by the Egyptian courts.

This judgment stands in contrast with the Court’s decision in Al-Kharafi v Libya, where the Court overturned the Cairo Court of Appeal’s decision to set aside an arbitral award on public policy grounds. In that decision, the Court provided a clear indication that the Egyptian court could only set aside awards in very limited circumstances. However, it appears from the Court’s recent decision that the Egyptian courts may be more sympathetic to overturning arbitral awards concerning Egyptian state entities.

On a commercial level, this decision may generate concern amongst international investors who are considering entering into or are already party to concession agreements with Egyptian government authorities, as it appears unclear whether investors can entirely rely on arbitration as a mechanism to resolve disputes. If a foreign investor does have a dispute with an Egyptian government body, it would be sensible to take local Egyptian advice on whether their disputes can be put to arbitration.

With thanks to Rachael Parker, trainee solicitor at Stephenson Harwood, for her contributions to this post.

The authors would also like to thank Zulficar & Partners for the providing an English translation of the Egyptian Court of Cassation’s decision.

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